Oil prices climbed around 3% during Wednesday's Asian session, after renewed military action involving the United States, Iran and Saudi Arabia heightened fears of prolonged supply disruptions across the Middle East, while industry data pointed to another drawdown in U.S. crude inventories.
By 3:50 pm AEST (5:50 am GMT), Brent crude futures for October delivery were up $2.57, or 3.1%, to US$84.65 per barrel, while West Texas Intermediate (WTI) gained $2.88, or 3.6%, to US$82.14 per barrel.
According to ING commodities strategists in The Commodities Feed:
"Renewed strength comes after the U.S. said it intercepted a surprise attack on U.S. troops. Saudi Arabia intercepted drones from Iranian-backed groups in Iraq, which were targeting Saudi energy infrastructure.
"U.S. and Saudi forces are carrying out strikes on weapon sites across eastern Iraq. These developments throw cold water on the idea of a swift de-escalation in the Persian Gulf.
"Clearly, with Saudi oil infrastructure increasingly targeted, the risk of more prolonged supply disruptions grows. There are reports that the 400k b/d Jazan refinery in Saudi Arabia has shut following Houthi attacks over the weekend.
"If confirmed, this will only add to tightness concerns in the refined products market already dealing with disruptions from the Persian Gulf, as well as Russia."
The renewed escalation has intensified concerns over the security of regional energy infrastructure and the potential for further disruptions to crude supplies from the Gulf.
Supporting prices further, industry data indicated U.S. crude stockpiles continued to tighten.
According to Reuters, citing figures from the American Petroleum Institute (API), U.S. crude inventories fell by approximately 3.3 million barrels in the week ended 24 July.
Investors are now awaiting official inventory data from the Energy Information Administration (EIA), due later on Wednesday, for confirmation of the decline.
